Question

14. If an investor buys a $50,000, 90-day T-bill for $49,2 annualized return on a simple (arithmetic) basis is: n l( 50 and holds i ill maturity,the 15. A newly issued T-bill with a $10,000 par value that sells for $9,850 maturity has a discount return of c. at a discount from par value d, only through a financial intermediary 16. Both T-bills and paper are a, with a stated coupon rate b at a premium above par value 17. A firm plans to issue 30-day commercial paper for $9,950,000 with a par vaueof o million. What is the firm's annualized cost of borrowing using an arithmetic approach? 18. The federal funds market allows depository institutions to: a. borrow short-term funds from one another; b, borrow long-term funds from one another e. borrow long-term funds from the Treasury d. borrow short-term funds from the Federal Reserve. 19. When a bank guarantees a future payment for a firm to another firm (usually involving exporting or importing), then the instrument used is: b. negotiated CD d. commercial paper agreement c. banker's acceptance 20. Which of the following is true of money market instruments? their yields are highly correlated over time a. b. they typically sell for par value when they are initially sold c. treasury bills have the highest yield d. they all make periodic coupon payments 21. The rate on which Eurodollar floating rate CDs is based is: a. the weighted average of European prime rates d. the weighted average of European discount rates a. NCDs b. commercial paper c. federal funds b. the London Interbank Offer Rate (LIBOR) c. the US Prime Rate 22 Which of the following is issued in the primary market by non-financial institutions? d. eurodollar accounts 23. "Flight to Quality" causes the risk differential between risky and risk-free securities: a. to be exaggerated b. to be reduced c, to be increased d. to be unchanged a. less than 10 years; 10 years or more; c. 10 years or more; less than 10 years; 24. Money market maturities are usuallywhile Capital Market maturities are b. less than 1 year; 1 year or more 25. Interest earned from Treasury bonds is usually: d. 91 days; 180 days. a. exempt from all income tax c. exempt from state and local tax b. exempt from federal income tax d. subject to all income tax 26. An in-class discussion indicated that a frequently recommended conventional mortgage involves a: a. fixed rate b. variable rate c. balloon payment d. roll-over clause. rate c.balloon payment d. roll-over clause

Answer 1

Answer(14): Annualized return = (50000 - 49250) / 49250 * 365/90

Annualized return = 6.18%

(I took 365 days in a year)

Answer(15): Discount return = (10000 - 9850) /10000 * 360/90

Discount return = 6%

(I took 360 days in a year)

Answer(16): Option "c". "At a discount from Par value."

Answer(22): NCDs is the correct option.

Non convertible debentures are issued in the primary market by non financial institutions.